I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

5 Good And Bad Ideas For What Apple Could Do With Its Vast Cash Pile

Over at the WSJ Farhad Manjoo has four ideas about what AppleApple could do with that vast stash of cash that it’s sitting on. I have to admit that I’m really not sure about the four that are being offered and I do rather like, in moderation, the fifth that is rejected.

As we saw in the botched rollout of its maps app and the continued embarrassment that is Siri, Apple isn’t very good at building services that rely on analyzing massive collections of data stored online. Mr. Cook seems to realize this—the company has been hiring and acquiring talent to address the shortcoming—but it’s not clear he sees the problem as an existential danger.

This does sound a little odd. Apple should try to specialise in something it already knows that it’s not very good at? The theory of comparative advantage says that we should produce what we are least bad at, not what we are most bad at: Apple should thus be concentrating on that marriage of design, software and hardware that it does so well, not trying to mimic what other companies do very much better than it does.

The second is to build or buy a cellular carrier. Something that really does sound bizarre. Going into competition with your main customers and distributors sounds rather like, how to put this politely, urinating into the soup.

The iPhone is Apple’s biggest product, but Apple sells almost all of its phones in partnership with carriers whose prices it doesn’t control.

Quite, so the moment that Apple starts to build an airtime provider then every one of its major partners in business is going to become extremely hacked off. And no one is going to wait: the European airtime providers would not just be grateful that Apple started to compete only with AT&TAT&T, Sprint, Verizon and T-Mobile in the US market. They’d know that they were next on the list. Good luck with Apple getting the European (or Chinese, Indian and so on and on) airtime providers to partner with Apple as that process rolled out.

Third is to start to own its manufacturing base:

Is it possible for Apple to build products any faster than it does now? If money is no object, sure: It could set up factories in many different countries and it could invest in next-generation production capabilities that might pump out iPhones even faster (for instance, robotic assembly lines, which have the added benefit of not raising any concerns about factory conditions).

Again, this seems like an odd thing to be insisting Apple should tackle. It already uses the most efficient manufacturer in the world (Foxconn, and others almost as efficient such as PegatronPegatron etc) so really, what would be gained by spending capital on building something not as efficient? As to roboticisation, that’s already happening at Foxconn anyway, the company has announced that it’s going to install 1 million robots over the next couple of years. This is quite apart from the fact that running a manufacturing operation is very different indeed from doing what Apple does do well, that design and retail side. There’s no particular reason to think that Apple has any of the relevant skills in this area and no, it really isn’t as simple as just hiring a few experts.

Four:

Give away media or storage. Or just cut prices! Why has Apple let NetflixNetflix Inc. and Amazon.comAmazon.com Inc. run away with the market for streaming video? Why, after I’ve already spent hundreds on an iPhone and a cellular plan, does Apple ask me to pay even more for enough cloud storage to back up all my photos? Wouldn’t it be fantastic if your Apple device came with a year of access to exclusive streaming movies, or 50 GB of space on the cloud (which Samsungalready does, or any number of other goodies (like the free productivity apps it is now giving away)?

Probably because Apple is interested in maximising profits so they continue to charge for the things that they think people will be willing to pay for.

So I’m not greatly enamoured of the four suggestions for what Apple could or should do. And, not solely for the reason that I like to be contrary, I am in favour of the idea that Manjoo rejects:

Ignore Carl Icahn. If you’re an Apple AAPL customer, employee, partner, or shareholder, you would be wise to follow CEO Tim Cook’s example and adopt a pose of respectful deafness toward the gadfly investor’s ridiculous proposals for Apple’s cash.

Apple now has $147 billion in cash, a number that could rise in Monday’s earnings report. But Mr. Icahn’s demand that Apple use all that money (or get a loan) to buy back its stock is just about the worst use of its cash I think of. If Jony Ive designed a new iPhone out of $100 bills—the iPhone 5$—even that would be a better way to spend Apple’s boatloads. And that’s just me spit-balling!

I agree that Apple shouldn’t send all of that money back to the shareholders, that’s absolutely true. Quite apart from anything else it doesn’t really have $147 billion that it can do that with. For there’s $100 billion of foreign profits in there which, if they were repatriated would face a $30 billion ( a very rough figure, sorry, but no one really knows what the tax bill would be) tax charge. So they’ve really only got $117 billion of available funds. And as I’ve said I doubt that the corporate culture of the company would allow them to gear up the company fully enough to make that sort of payout.

But that some of this money should be returned to shareholders, yes, I entirely agree. For this is the point and purpose of a company. To make cash for the investors, nothing more and nothing less. And if the current management of that company doesn’t have any good ideas about how to use the shareholders’ money then the correct thing to do is indeed to give it back to the shareholders and allow them to make their own decisions about it.

In short, yes, Apple has a vast stash of cash. That amount which the management thinks can be usefully employed in increasing profits to the benefit of shareholders should be used to do so. The rest should be given back to the shareholders. And trying to out-GoogleGoogle Google, or compete with Apple’s major distribution partners, really don’t sound like great plans for increasing future profits.

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